Future Group clashes with Cadbury over price discrimination
June, 03rd 2008
The country's largest retailer, Future Group, is in conflict mode with the country's largest chocolates maker, Cadbury India.
Future has boycotted the Cadbury brand across various formats within the group. The groups chief executive Kishore Biyani said Cadbury is not cutting uniform deals with all modern retailers and is giving better deals to international retailers who may have larger stakes in global markets.
The conflict has been brewing for some months now and discussions between the two finally broke down last week when the retailer sent instructions to all formats to boycott the brand. Multinational companies have to respect the contribution of Indian modern retailers to their growth and treat us as equal partners in business, Mr Biyani said.
A Cadbury India spokesperson said, This has come as a surprise to us, we have received no official communiqu from Big Bazaar. As far as we are concerned, the negotiations are still on to finalise a mutually agreeable set of terms.
Rejecting Future Groups claim of discriminatory deals, Cadbury sources said the deals were always local and based on the retailers contribution to the local subsidiary sales. Sales from emerging markets like India are vital to global sales and therefore, it is unlikely that Cadbury will discriminate on this front, said a senior official.
Shoprite and Metro are dominant global retailers currently operating in India through cash-and-carry formats.
We have found out from our intelligence network that the company is not cutting uniform deals with all retailers and probably has better deals with international retailers where there are larger stakes involved. We find their conditional terms unacceptable, offering fill rates (stocks on shelf) of only 65%.
Such terms are unfair, especially when we have to pay the rent for the entire shelf space to the developer. Cadbury has also been insisting on payments only after an external audit which, for retailers like us who buy and sell and not really stock up, is unacceptable. These are age-old terms offered to wholesale dealers and now forced upon us by Cadbury. In fact, we have been having a dialogue with them over the past few months over this and other issues like non-payment of dues, said Sadashiv Nayak, Food Bazaar CEO.
However, sources said the growing rift between the chocolate maker and Future Group began after the latter began stocking its shelves with competing chocolates brands at higher profit margins.
In fact, in the past few days, the retailer has also entered into an exclusive tie-up with Tiffanys to launch its brands at various Big Bazaar and Food Bazaar outlets.
Increasingly, the Future Group has been demanding its pound of flesh from consumer goods makers who have also begun relaxing their stand with modern retailers. Earlier, the retailer had taken on other international companies such as Frito-Lay and GlaxoSmithKline over similar issues, although both are now back to closely working with each other.
Sales from modern retail are now roughly estimated to be around 10-15% of total FMCG sales. Retail watchers say the move was an indication of the changing equation between manufacturers and the growing clout of modern retailers like Future Group.
Over the past three years, Cadbury India has seen over 20% topline growth. Emerging markets already provide one-third of the companys confectionery revenues and represent its main source of growth. Cadbury Schweppes, which sees India as a battleground and must-win market, has substantially scaled up capital and revenue investments in the Indian subsidiary.